Post on 05-Jan-2016
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Chapter 6 Government
These slides supplement the textbook, but should not replace reading the textbook
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What is market failure?
A condition that arises when unrestrained operation of markets yields socially undesirable results
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How does the government establish
and enforcerules of the game?
It safeguards private property and enforces contracts
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What is the role of government?
The government ...
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Weights and measures. Strong national defense. Public goods. Protects us against social costs. Encourages merit goods. Helps poor and disadvantaged people. Taxes Establishes & enforces rules of the game Promotes competition Regulates natural monopolies Promotes a more equal distribution of income Strives for full employment and price stability
OVERVIEW OF CHAPTER
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What is aprivate good?
A good that has substitutes and does not have to be shared with others.
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What is apublic good?
A good that is available for all to consume, regardless of who pays and who does not
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What are some examples of
public goods? public education national defense roads
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What is amerit good?
Merit goods satisfy a want or a need like public education, safe food, helmets, and reliable brakes.
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How does the government promote
merit goods?Subsidies and regulations.
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What are examples of first and third party laws?Wearing helmets is a first party law
Good breaks is a third party law
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What is asocial cost?
Costs of production which businesses bear no responsibility
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What are examples of social cost, financial
and otherwise?
pollution unsafe working conditions depletion of resources
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What is an externality?
A cost or a benefit that falls on third parties and is therefore ignored by the two parties to the market transaction
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What is a negative externality?
The undesirable byproduct of the industrial process.
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How does the government deal
with externalities?It employs taxes, subsidies, and regulations to discourage negative externalities and to encourage positive externalities
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What is the conflict?
States versus the federal government, science versus politics, social needs versus growth, and favoritism (rent seeking).
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What is the problem with lengthy and detailed laws?
Complications and enforceability – tie versus beautiful tie analogy.
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What is the purpose of our present federal income tax system?
Politics!
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What is the point of George Orwell’s book
Animal Farm?
Centralized power leads to favoritism whereby “all animals are equal, but some animals are more equal than others.”
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What is theProgressive Movement?
Advocates wealth distribution to end conflict between the rich and the poor, limit big business, and segregate races.
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Would progressives be Austrians or
Keynesians?
Keynesians
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Why is Social Security a Ponzi Scheme?
Participants receive returns on their contributions from the latest contributors.
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How does this differ from private insurance?
Typically insurance companies pay claims from the return on principle, not from the principle itself.
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Why are unemployment
benefits a good idea economically as well
as socially?
Unemployment benefits supports spending during hard times.
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What is Medicare?
Provides health insurance to people 65 years and older and some disabled people.
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What is the differencepart A and part B?
Part A is hospital insurance and Part B is medical insurance.
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What is Medicaid?
Provides medical care for the poor.
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What is difference between
Medicare and Medicaid?
Medicare is insurance and Medicaid is an equity loan.
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What is ObamaCare?Requires citizens to have qualifying health coverage and expands Medicaid. People without coverage will pay a tax.
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What is anunfunded liability?
Government commits itself to spending money on programs but does not provide adequate funding.
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What is aFlat Tax?
A proportional tax is a tax whereby everyone pays the same rate regardless of income.
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What is aValue Added Tax?
A VAT tax is a tax on the purchase price of a good representing the value added along the supply chain.
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What is aProgressive Income Tax?A graduated income tax is a tax whereby tax payers pay in accordance to their tax bracket after exemptions and deductions.
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What ismarginal tax rate?
The percentage of each additional dollar of income that goes to taxes
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How does our federal income
tax work?• Exemptions• Deductions• Standard deduction• http://www.usdebtclock.org/
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What is aAlternative Minimum
Tax?
An AMT tax is a parallel tax system aimed at wealthy individuals limited deductions.
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What is tax incidence?The distribution of tax burden among tax payers
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What is the ability to pay principle of
taxation?Those with a greater ability to pay should pay more tax
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What is the benefits received principle of
taxation?Those who receive more benefits from government programs funded by a tax should pay more tax
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What is aregressive tax?
The tax as a percentage of income decreases as income increases
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What is a monopoly?The sole producer of a product for which there are no good substitutes
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How does the government promote
competition?Antitrust laws try to promote competition by prohibiting collusion and other anticompetitive practices
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What is anatural monopoly?
One firm that can serve the entire market at a lower per-unit cost than can two or more firms
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Can a natural monopoly take advantage of its
exclusive market?No, it is regulated by the government
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How does the government promote
full employment, price stability, & growth?
By using monetary and fiscal policies
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What is a fiscal policy?The use of government to influence aggregate economic activity through taxing and spending
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What is amonetary policy?
Regulation of the money supply in order to influence aggregate economic activity
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END